Bias Suits Against Banks by Cities May Divide High Court

U.S. Supreme Court justices signaled they may divide over the ability of cities to use the Fair Housing Act to sue banks for discriminatory lending practices that contribute to urban blight.

Hearing arguments in Washington as the country went to the polls to choose the next president, the high court grappled with a case that grew out of the subprime mortgage crisis.

A federal appeals court read the Fair Housing Act as giving Miami the right to sue Bank of America, Wells Fargo and Citigroup. Miami says the banks targeted minorities for riskier and costly loans, leading to foreclosures that cost the city property-tax revenues and forced it to spend more on police and fire services.

Some of the court’s liberal justices indicated through their questions that they would vote to let the cases go forward. Justice Elena Kagan suggested the dispute was at the heart of what the landmark 1968 law was designed to address.

“Everything about this complaint is about racial segregation, it seems to me,” Kagan said.

But two potential swing votes, Chief Justice John Roberts and Justice Anthony Kennedy, suggested they saw a need to limit the types of suits that could be filed under the law. Roberts called Miami’s injury “derivative.”

“I don’t see how you can say that your loss of property taxes is a direct injury,” he told the city’s lawyer, Robert Peck.

The Election Day argument was a relatively low-key affair, with Justices Samuel Alito and Clarence Thomas asking no questions and Justice Stephen Breyer saying far less than usual. One possibility is that the shorthanded court could divide 4–4, an outcome that would let Miami press ahead without setting a nationwide precedent.

Bank of America and Wells Fargo say Congress didn’t intend to allow private lawsuits by a plaintiff who wasn’t a victim of discrimination and whose interests are so far removed from the alleged wrongdoing.

The banks’ lawyer, Neal Katyal, said the city was “borrowing someone else’s anti-discrimination interests.” Citigroup isn’t directly involved in the Supreme Court appeal.

The Fair Housing Act says an “aggrieved person” may sue. In 2011 the Supreme Court interpreted similar language in the federal job-discrimination law to mean that only people within the law’s “zone of interests” could sue.

Miami and the Obama administration say the 2011 decision left intact earlier rulings suggesting that the Fair Housing Act was drafted broadly. They say the only restrictions on who can sue come from the Constitution and its requirement that a plaintiff suffered an injury that a court would be able to redress.

Similar suits have been filed around the country, including claims by Los Angeles and three Georgia counties.

Peck told the court that the cities of Baltimore and Memphis, Tennessee, had settled similar claims for less than $10 million.

“We not talking about huge sums of money,” he said.